Gift with reserved usufruct

Which text applies?

• Art. 669 of the French Tax Code (CGI) : Values the bare ownership transferred according to the usufructuary’s age on the date of the gift: 60% of full ownership under 71 full years of age, 70% under 81 full years.
• Art. 1133 CGI : Exempts from any tax the merger of usufruct with bare ownership on the death of the usufructuary or at the term set for the usufruct.
• Art. 751 CGI : Presumes that an asset whose bare ownership belongs to an heir forms part of the usufructuary’s estate, unless, in particular, there was a valid gift made more than three months before death.

How does a gift with reserved usufruct work?

The donor transfers the bare ownership and retains the usufruct: they continue to occupy the asset or to receive the rents or dividends, and remain taxable on that income. Gift duties are calculated on the value of the bare ownership alone, after the allowance of €100,000 per parent and per child (art. 779 CGI). On the donor’s death, the usufruct ends and the donee becomes full owner without further duties, including on the increase in the asset’s value since the gift.

As the gift is made by notarial deed, the presumption of article 751 CGI is set aside where the gift was made more than three months before death.

Can it be combined with a Dutreil pact or a gift-sharing (donation-partage)?

A gift of the bare ownership of shares may be made under a Dutreil pact, provided that the articles of association limit the usufructuary’s voting rights to decisions on the allocation of profits. The 50% reduction in duties under article 790 CGI is, however, reserved for gifts of full ownership. A reserved usufruct can also be combined with a gift-sharing (donation-partage).

Which points should be checked before making the gift?

• the usufruct may be made reversionary in favour of the surviving spouse, to maintain their income after the donor’s death;
• a reserved usufruct over a sum of money prevents valuation at the date of the deed in a gift-sharing (art. 1078 Civil Code), and gives rise to a quasi-usufruct (art. 587 Civil Code) and to a restitution debt on death;
• for shares, the allocation of powers between usufructuary and bare owner needs to be organised in the articles of association and in the deed of gift.

In which cases does this concept arise?

• Opening up your company’s capital while preparing succession→
• Organising the transmission of your wealth while protecting your loved ones→

Which related concepts should you know?

• Dismemberment of ownership
• Usufruct
• Bare ownership
• Tax scale of the usufruct
• Quasi-usufruct
• Gift between spouses (to the survivor)